East Timor's prime minister says he is shocked by the Australian Government's decision to authorise raids on a lawyer and whistleblower who were set to provide evidence against Australia in The Hague.

East Timor will launch a case in The Hague today to have a $40 billion oil and gas treaty it signed with Australia ripped up.

It alleges Australia had the advantage in negotiations because the Australian Secret Intelligence Service (ASIS) hid listening devices in the Timorese cabinet room in Dili in 2004.

It claims the operation was ordered by then ASIS boss David Irvine, who now runs Australia's local intelligence agency, ASIO.

Raiding the premises of a legal representative of Timor-Leste and taking such aggressive action against a key witness is unconscionable and unacceptable conduct.

East Timorese PM Xanana Gusmao

Yesterday, ASIO officers raided the Canberra office of East Timor's lawyer Bernard Collaery - who is currently in the Netherlands preparing for the case - and cancelled the passport for a retired Australian spy expected to give evidence after his house was also raided.

The existence of the whistleblower, a former director of technical operations at ASIS, was a secret known to only a handful of officials and lawyers until the raids on Tuesday.

East Timor's prime minister Xanana Gusmao has issued a statement calling on Prime Minister Tony Abbott to explain himself and guarantee the safety of the whistleblower.

Would ASIS spying be illegal?

But East Timor's ambassador to Australia, Abel Guterres, told the ABC's Lateline program that the raids were "absolutely regrettable".

"I must say that Timor-Leste has been and is and will always be aligned in terms of national security interests with our neighbour and especially with Australia," he said.

"So there is no question in terms of our engagement and loyalty to this engagement in the national security issue."

Mr Guterres says East Timor understands the need for spying in issues of national security, but that is not the case here.

"What we are engaging here is purely a commercial issue," he said.

Australia offered to renovate East Timorese government building

East Timor claims ASIS used the cover of Australia's aid program to spy on sensitive information during the 2004 oil and gas negotiations.

The two countries were working on a deal worth tens of billions of dollars to share revenue from the oil and gas deposits under the Timor Sea, called The Greater Sunrise fields.

Analysis from case expert Damien Kingsbury

The problem is that the [maritime] areas that have been agreed to would ordinarily be wholly under Timorese jurisdiction had the boundary been drawn halfway between the two countries.

That's to say: if Australia had recognised the Convention of the Law of the Sea and drawn the boundary halfway between the two countries, East Timor would get 100 per cent of all of the [oil and gas] reserves, as is its right under international law.

But under the current arrangement it gets half of the income of the reserves in some areas, and 90 per cent of the income from reserves in other areas.

Woodside Petroleum, which wanted to exploit the field, was working hand in glove with the Howard government and senior ministers to score the best possible deal.

New details from the whistleblower shed light on the alleged spying.

A decade ago, under an Australian aid program, the seat of government on the Dili waterfront was given an expensive renovation.

But the gift was allegedly a kind of Trojan horse.

East Timor claims in May 2004 ASIS agents posing as site workers started planting listening devices inside the walls of the cabinet room, two offices away from the chamber occupied by the prime minister.

They returned in July and again in August, presumably to check and maintain their eavesdropping equipment before removing all trace of their activity by December, when the operation ended.